Retail becomes one of Sri Lanka's fastest-growing sectors

Despite a significantly smaller consumer base than in neighbouring India, the retail sector in Sri Lanka has recorded formidable growth in recent years. This is the result of strong macroeconomic fundamentals, rising incomes, high levels of household expenditure and shifting consumer trends. Retail space in shopping malls is in critically short supply, while a burgeoning e-commerce segment is slated to meet substantial, untapped consumer demand. With supermarket and hypermarket expansions also on the rise, driven by an increasingly sophisticated and brand-conscious consumer group, all segments of the retail value chain hold vast potential for future investment and expansion.

Macro Fundamentals

Sri Lanka has undergone an economic transformation over the past decade, with GDP per capita in current US dollars rising by over 50% from 2010-15 to reach $3794, according to the World Bank, while per capita income tripled from 2003-14, reaching $3440. Sri Lanka’s most recent consumer and household spending survey, conducted in 2012/13, found the monthly mean household income was LKR45,878 ($330), while estimated average monthly household expenditure was LKR41,444 ($298), up 32% from the 2009/10 survey.

Unemployment has hovered between 4% and 5% since 2013, compared to 7.7% in 2005 and 12.2% in 1995, with retail purchases and consumer spending also benefitting from foreign remittances, the largest source of foreign exchange in the country. Remittances account for roughly 8% of GDP and 33% of total earnings, with an estimated 1.7m Sri Lankans employed overseas as of 2014.

As a result of these factors, consumer spending reached 17% compound annual growth between 2007 and 2012, according to Jones Lang LaSalle (JLL), a global real estate consultancy, in its October 2013 report titled “Refreshingly Sri Lanka — An Island of Retail Opportunity.” JLL reported that the country’s retail market was valued at between $25bn and $30bn in 2013, while Odel, a local retailer active since 1989, reported that the country’s retail market is expanding by an average of 20% annually.

Confidence Rising

Consumer confidence is also rising, with market researcher Nielsen reporting in 2015 that confidence in Sri Lanka had reached an all-time high due to generous allocations to public sector employees, who comprise around 7% of the total workforce, as well as price cuts in the 2015 interim budget. These cuts are expected to curb inflation, although it could still rise because of growing devaluation pressure on the rupee in 2015 and into 2016.

Nielsen reported that income levels among the richest 20% of households stood at LKR121,368 ($874) per month as of February 2015, with this 20% possessing an estimated 52.9% of all income in the country. With high- and middle-income consumers increasingly shifting towards lifestyle-oriented products, particularly in the food, transport and home products segments, international retailers are facing considerable opportunities for future expansion. Multinationals have taken notice, and several international retailers have established operations in the country, including McDonalds, KFC, Mango, Zara and H&M. More recently, US firm Cold Stone Creamery announced plans to enter the country in July 2015.

Consumer Habits

Sri Lankan spending patterns resemble those in Western countries, with a rising consumer preference for lifestyle products and aspirational luxury goods, in sharp contrast to other South Asian and South-east Asian countries. This disparity can be attributed in part to a lack of a strong savings culture in Sri Lanka, which leaves households with more money to spend on non-essential items. In the fast-moving commercial goods segment, for example, demand for personal care items, such as facial and body creams is increasing. With incomes rising and interest rates still favourable, purchases of white goods, electronics and automobiles are also on the rise. According to Nielsen, some 10% of Sri Lankan households owned a vehicle as of February 2015, while the Ceylon Motor Trader’ Association reported that vehicle imports increased by 55% in 2015 following the relaxation of duties.

This has created significant potential for future growth. Sri Lanka rose four spots on AT Kearney’s 2015 “Global Retail Development Index”, which measures market attractiveness, country risks, market saturation and time pressure among 30 developing economies, to reach 14th place overall. The country now ranks above India (15), Russia (21) and the Philippines (24), but still lags behind Indonesia (12), Malaysia (9) and China (1). The sector’s vast growth potential is underscored by relatively limited formal retail penetration, with JLL reporting that organised players represent just 3% of the total market.


With limited formal retail penetration, Sri Lanka’s modern supermarket-hypermarket segment is among the fastest-growing sectors, with supermarket penetration increasing from 5% in 2005 to around 8% in 2012. The dominant players in the sector include Cargills Food City, Keells Super, Laugfs Sunup, Arpico, and Lanka Sathosa. Cargills chains command a 50% market share in terms of turnover, with the company holding over 220 outlets spread across the country.

The majority of supermarkets and hypermarkets are concentrated in Colombo, home to over 160 stand-alone outlets with an estimated 700,000 sq ft of total gross leasable area. JLL reported that expansion plans for each major retailer target between three and eight new outlets annually.


Colombo remains the major retail centre and has witnessed increasing investment in new retail ventures in recent years, most prominently in shopping malls. Retail establishments in the city are largely concentrated in traditional markets, such as Pettah, and upmarket areas, such as Kollupitiya, Bambalapitiya and Wellawatte, while branded shopping destinations are mainly located on Galle Road and Duplication Road. Rents average from LKR60-150 ($0.43-1.08) per sq ft per month in the Colombo suburb Maharagama, to LKR300-700 ($2.16-5.04) in trendy Kollupitiya, according to JLL.

Colombo is currently home to eight malls, ranging in size from 30,000 sq ft to 250,000, and dominated by Majestic City, Liberty Plaza and Crescat Boulevard. The total built-up area of malls in the city stood at 660,000 sq ft in 2013, according to JLL, while vacancy rates averaged a low 5%. Indeed, the firm reported a shortage of retail space in Colombo’s shopping malls, with demand standing at a projected 2.7m sq ft in 2015, and expected to hit 3.3m sq ft by 2018, while supply is forecast to reach just 2.2m sq ft by 2018.

New mall developments are on the rise as a result. JLL reported 10 new malls are expected to open by 2018, adding an estimated 1.5m sq ft of retail space to the mix. Notable among these are the 250,000 sq ft Shangri-La Mall, opening on Galle Face in 2017, the 250,000-sq-ft Havelock City Mall, scheduled for completion in 2018, and the 400,000-sq-ft John Keells mall, opening on Glennie Street in 2018.

Regional Expansion

Outside of Colombo, JLL has identified a number of secondary cities with similar population density and spending habits where new mall developments could realise considerable profits, including Kandy, Gampaha, Kalutara, Galle and Matara. Developments are already under way in some of these cities – Gampaha, for example, boasts some of the highest per capita incomes nationwide, with Gampaha Development Company moving forward on the OREX City and Ward City developments.


According to, one of the largest online retailers in the country, growth in e-commerce is expected to easily outpace overall retail growth over the next four years.

A recent survey by Takas found that while overall the retail market in Sri Lanka is projected to expand by 5% annually until 2020, e-commerce will simultaneously expand by 71% to reach $4bn. The e-commerce segment is presently dominated by Kapruka, an online retailer targeting upper-income clients, with annual revenues of an estimated $8m. Kapruka is followed by, owned by Dialog Axiata subsidiary Digital Commerce, which boasts $3m in annual revenues,, a coupon-based retailer,, and

The expansion of E-commerce has been somewhat limited by third-party delivery costs, coupled with a lack of available online payment platforms, with websites such as Takas choosing to use a cash-on-delivery system instead. However, recent offerings – such as mobile operator Dialog Axiata’s eZ Cash mobile payment system, rolled out in 2012, and adopted by fellow operator Etisalat in March 2014 – have helped to address the problem.

Perhaps the most significant upcoming development, however, will be online payment platform PayPal’s full market entrance. Incoming payments from the online platform were previously not permitted in Sri Lanka, however the Central Bank of Sri Lanka cleared PayPal for full operations in February 2016.

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The Report: Sri Lanka 2016

Industry & Retail chapter from The Report: Sri Lanka 2016